• There has been a massive shift in paradigm as Compound races to become the largest DeFi platform by total value locked on the protocol. 
  • After ripping Maker of its long time dominance, Compound now claims a staggering 38% of the total value locked in DeFi. COMP has also become the largest DeFi token by market cap.
  • In a race to accumulate more COMP tokens, liquidity protocols built atop Compound are now dipping into users’ funds to put it to work in Compound. 

In the last few days, decentralized finance’s lending protocol Compound has made headlines in the crypto airwave after rolling out a distribution schedule for its governance token COMP. Since listing on exchanges, COMP has had a legendary rally of over 400% after bracing an all-time high of $381.89 according to data from coin aggregator site, Coinmarketcap

In what seems to be a historic moment in the DeFi space, Compound has taken everyone by storm after displacing the DeFi giant MakerDAO to become the largest DeFi protocol ranked by value locked in the protocol. Until now, Maker has been the face of DeFi, achieving almost 50% dominance in the past months.

How Compound Managed To Seize The Centre Stage


Source: Defi Pulse

Compound is a decentralized finance (DeFi) platform consisting of algorithmic protocol that affords users the privilege to earn decentralized passive income generated on Ethereum. Users are entitled to interest on assets they lend out to the platform, and also assets they borrow against collateral.  

As at the time of writing, COMP token is currently ranked as the 21st largest cryptocurrency by market cap and the largest DeFi token with a market cap of over $700 million. COMP price opened trading around $93.35 on June 16 and rallied to an all-time high of $381.89 on June 21; barely 4 days after opening trading.

With over $580 million locked in the protocol, Compound stands tall as the largest DeFi platform with over 38% market dominance after displacing Maker which now sits behind with $470 million locked in value.  

You probably haven’t heard so much about Compound until recently, interestingly it has been around since October 2018. Compound protocol was initially built as an integrated marketplace where users place collateral and borrow money. The purpose of Compound has been geared towards integrating a protocol that makes it easy for other companies to build products atop it. So far, its mission has been achieved successfully. 

Before Compound made the move to start the distribution of its governance token, the DeFi project has never come close to locking $200 million in value. It has ranked as the third-largest DeFi platform after Synthetix, while Maker has maintained the lead with a good margin. The value locked in Maker in the past months has been so high that no DeFi project has been able to contend that position.

COMP Distribution Will Run For Four Years

comp distribution

Source: Compound

The tone of the music changed after Compound achieved a 100% vote in favor of the proposal for the distribution of its governance token. The full-blown FOMO started after Compound announced it would commence the distribution of COMP tokens on June 15. The token is distributed across the ETH, DAI, USDC, USDT… markets. The proposal states: 

“Within each market, half of the COMP is allocated to suppliers, and the other half to borrowers, whenever an address, interacts with a Compound market, it receives all COMP earned in that market, should it exceed a 0.001 COMP threshold.”

According to COMP’s distribution page, the protocol has scheduled a total of 4,208,469 for distribution, out of which 2,880 will be distributed each day. By way of calculation, this distribution exercise should take approximately 4 years to get completed. Within each market, 50% of the distribution is earned by suppliers, and 50% by borrowers. 

Due to the limited supply of COMP, users have rallied behind the platform to get the first set of disbursements. Most users have lent out their assets to Compound and turn around to borrow against that asset, this way they can earn COMP both for borrowing and for lending. 

Compound (COMP) is an ERC-20 asset that powers the community governance of the Compound protocol. Token holders will be bestowed with the right to debate, propose, and vote on all changes concerning the protocol. 

Since the distribution started, a couple of exchanges including Coinbase have declared support for the governance token. According to last Thursday’s announcement by Coinbase, COMP will start trading  on the exchange from  June 23 at 9 a.m. Pacific Time if the liquidity requirements are met. 

The total DeFi market capitalization has surged with massive interest and reached a record high of $1.52 billion. A demand that hasn’t been witnessed before. The total value locked in Compound constitutes a robust 38 percent of this market cap. 

Protocols Built Atop Compound Constitutes A Massive Part Of Its Liquidity


A large percentage of the volume flowing into Compound comes from DeFi startups like Dharma, Opyn,  InstaDapp  and surprisingly from ventures such as Nexo finance too which deploys a centralized protocol.  

This is the catch; liquidity protocols are dipping into users’ capital and putting it to work on Compound. The notion is to earn COMP tokens from the protocol. Most Startups see this as a smart move to accumulate DeFi tokens as they have historically outperformed Bitcoin in the last couple of months. 

It’s not yet clear if Nexo finance and its counterparts will in turn distribute all earned COMP to their users. However, one could also assume that these protocol startups may be accumulating a large amount of the governance token in order to amass a majority voting right on the Compound protocol.

It is still early to judge whether the sustainability of the new dominance created by the Compound protocol is just a nine-day wonder or something that is here to stay. As always, only time will tell. DeFi is now a big name in the cryptocurrency and blockchain industry. Undoubtedly, it’s well on track to becoming the first purely decentralized product deployed on blockchain technology.